In today’s Financial Times, a sign of the times: Investors put trust in people at NYSE.

Excerpt:

The explosive growth of electronic trading has meant an ever-shrinking role for the NYSE’s group of so-called specialists who match buyers with sellers in certain stocks.

Brokers who facilitate the trading process have also been marginalised as the 105-year-old maplewood floor in downtown Manhattan, which once buzzed with excited traders, has been populated with banks of computer screens.

But over the past six weeks, the participation of specialists has been running at almost three times the year-to-date average, according to analysts and sources close to the exchange. Floor brokers have also seen a sharp uptick in activity and account for 10 per cent of volume, up from 4 per cent at the start of the year.

Larry Leibowitz, head of US markets and global technology at NYSE Euronext, parent company of the NYSE, said: “There is no doubt that specialists and floor brokers have played a greater role amid the volatility.”

One trader said: “The combination of hi-tech and hi-touch has been shown in recent weeks to be the best model. People are becoming a little suspicious of dark pools where at times like these there really is not enough transparency.”

I think that trend is the investor’s friend (the increased participation, that is, not the volatility!). Over the next several weeks, the enhancements to our market model should build on this nicely.

Good morning, all. A bit of historical-trivia perspective, following yesterday’s 10-percent spike in the market:

Today in NYSE History (NYSE.com)
29 Oct. 1929 — “Black Tuesday” - the most dramatic day of the 1929 Crash. The DJIA was off nearly 12 percent on volume of 16 million shares - a record that would stand for decades.

In today’s Financial Times, a sign of the times: Investors put trust in people at NYSE.

Excerpt:

The explosive growth of electronic trading has meant an ever-shrinking role for the NYSE’s group of so-called specialists who match buyers with sellers in certain stocks.

Brokers who facilitate the trading process have also been marginalised as the 105-year-old maplewood floor in downtown Manhattan, which once buzzed with excited traders, has been populated with banks of computer screens.

But over the past six weeks, the participation of specialists has been running at almost three times the year-to-date average, according to analysts and sources close to the exchange. Floor brokers have also seen a sharp uptick in activity and account for 10 per cent of volume, up from 4 per cent at the start of the year.

Larry Leibowitz, head of US markets and global technology at NYSE Euronext, parent company of the NYSE, said: “There is no doubt that specialists and floor brokers have played a greater role amid the volatility.”

One trader said: “The combination of hi-tech and hi-touch has been shown in recent weeks to be the best model. People are becoming a little suspicious of dark pools where at times like these there really is not enough transparency.”

I think that trend is the investor’s friend (the increased participation, that is, not the volatility!). Over the next several weeks, the enhancements to our market model should build on this nicely.

Good morning, all. A bit of historical-trivia perspective, following yesterday’s 10-percent spike in the market:

Today in NYSE History (NYSE.com)
29 Oct. 1929 — “Black Tuesday” - the most dramatic day of the 1929 Crash. The DJIA was off nearly 12 percent on volume of 16 million shares - a record that would stand for decades.

A colleague pointed out that the commentators in this CNBC segment say some nice things about how smoothly stocks opened here this morning, given the futures activity that preceded it. The relevant part starts at 1:15 into the segment. Among other things, Sue Herera says:

When you have to get a market and a stock open and you’re locked limit down, it’s people who get it done.

I think that’s true in general, and I am second to none in my appreciation for the value of people in the trading process. But although the open did appear relatively smooth, traders I spoke with said it was nothing exceptional; that the volume was very light; that the expected wave of activity never arrived. People were ready, like a batter intently waiting for a fastball and prepared to react instantly. Instead, a change-up came floating in. It was oddly quiet throughout the open.

One other note: We welcome having journalists report from the trading floor, getting a first-hand look at the market and passing their insights along to their audience. The comments on CNBC are but one example of that. The NYSE press staff has imposed a lot on our members in the last couple of months, bringing hundreds of still and video camera people and reporters into their workplace, and they’ve been very good about it. It’s not always easy, needing to get an order done right away and needing to navigate through a video camera guy, sound guy, producer and reporter to get to your destination. But with the help of the members’ effort and patience, the story of the trading floor is being told, and the staff is grateful for that.

A colleague pointed out that the commentators in this CNBC segment say some nice things about how smoothly stocks opened here this morning, given the futures activity that preceded it. The relevant part starts at 1:15 into the segment. Among other things, Sue Herera says:

When you have to get a market and a stock open and you’re locked limit down, it’s people who get it done.

I think that’s true in general, and I am second to none in my appreciation for the value of people in the trading process. But although the open did appear relatively smooth, traders I spoke with said it was nothing exceptional; that the volume was very light; that the expected wave of activity never arrived. People were ready, like a batter intently waiting for a fastball and prepared to react instantly. Instead, a change-up came floating in. It was oddly quiet throughout the open.

One other note: We welcome having journalists report from the trading floor, getting a first-hand look at the market and passing their insights along to their audience. The comments on CNBC are but one example of that. The NYSE press staff has imposed a lot on our members in the last couple of months, bringing hundreds of still and video camera people and reporters into their workplace, and they’ve been very good about it. It’s not always easy, needing to get an order done right away and needing to navigate through a video camera guy, sound guy, producer and reporter to get to your destination. But with the help of the members’ effort and patience, the story of the trading floor is being told, and the staff is grateful for that.

OK, I know, the market looks grim today, but how long have I waited to post this news? Exactly as long as you’ve waited to see it, my friends. This is one press release I was happy to write and have been dying to publish The entire text is pasted below, minus the boilerplate. More details about the rollout will follow in the coming days.

NYSE Aims to Maximize Market Quality and Competitiveness
With Newly Approved Enhancements of Trading Model
– SEC Approves New Rule Set and Trading Tools
Designed to Benefit NYSE Listed Companies and Traders –

NEW YORK, Oct. 24, 2008 – The New York Stock Exchange, a subsidiary of NYSE Euronext (NYX), is moving forward with a revised rule set and advanced trading tools designed to maximize the NYSE’s market quality and competitiveness in today’s increasingly electronic trading environment. The initiatives further distinguish the NYSE from competitors and provide greater value to customers by enhancing the Exchange’s unique market model with new benefits and functionality.

The Securities and Exchange Commission (SEC) today approved two key initiatives to provide NYSE-listed companies and their investors as well as the trading community with lower price volatility; smaller spreads between best bid and offer; greater price improvement; more active participation by a broader range of market professionals; and overall deeper liquidity.

“Fast, electronic trading is the norm now, and our trading customers are looking for us to go beyond just fast and electronic – to offer something more. They want a market that encourages participants to add liquidity and helps them trade larger orders more efficiently,” said Lawrence Leibowitz, NYSE Euronext’s Group Executive Vice President in charge of U.S. Markets and Global Technology. “The NYSE is providing customers with a unique range of solutions for these challenges — a rich combination of high-tech and high-touch features that no other market offers. Our listed companies and their investors also stand to benefit from the resulting tighter spreads, lower volatility and higher level of price improvement.”

Timetable for Transformation

Specifically, the SEC today approved a next-generation market model filed by the NYSE in June, and a new pilot program unveiled just today to attract new liquidity providers. Implementation of the new initiatives will begin next week and be completed in November.
• Specialists will be transformed into Designated Market Makers (DMMs) who have accountability for providing liquidity, better access to capital and risk-management capabilities, and are on an even playing field with other market participants in terms of trading parity and access to information.
• DMM quotes will be on parity with those of floor brokers and those on the Display Book, encouraging more DMM participation and higher market quality.
• The DMM’s algorithm will no longer receive a “look” at incoming orders. This ensures that an intermediary will not see orders first, and that DMMs compete as a market participant.
• All market participants will have the opportunity to send a new type of reserve order with a published quantity of “zero.” This order will not be displayed to the DMM. Incoming orders will trade against better-priced dark interest before trading at the published NYSE best price, resulting in greater liquidity.
• DMMs will provide price improvement and match incoming orders based on a new Capital Commitment Schedule, which will be added to the NYSE Display Book and will receive only public information about orders.
• DMMs will have the obligation to maintain an orderly market in their stocks, quote at the national best bid or offer a specified percentage of the time, and facilitate price discovery at the open, close and in periods of significant imbalances.
• Putting the DMM’s actions directly into the Display Book will further reduce order latency.
• A newly announced pilot program will establish Supplemental Liquidity Providers (SLPs), a new class of upstairs, electronic, high-volume members incented to add liquidity on the NYSE. The program will reward aggressive liquidity suppliers, who will complement and add competition to existing quote providers.
o SLPs will be obligated to maintain a bid or offer at the National Best Bid or Offer (NBBO) in each assigned security at least 5 percent of the trading day.
o The NYSE will pay a financial rebate to the SLP when the SLP posts liquidity in an assigned security that executes against incoming orders. The goal is to generate more quoting activity, leading to tighter spreads and greater liquidity at each price level.
o SLPs will trade only for their proprietary accounts, not for public customers or on an agency basis.
o An NYSE staff committee will assign each SLP a cross section of NYSE-listed securities. Multiple SLPs may be assigned to each issue. The pilot will start with a focus on highly active issues, and gradually expand its coverage.
o A member organization cannot act as a Specialist/Designated Market Maker and SLP in the same security.
o The SLP will have the same publicly available trading information and market data that all other NYSE customers have available to them.

Additional enhancements of the NYSE market model unrelated to today’s approvals by the SEC will be announced as they are implemented.

Do I sound a little happy about this? I hope these changes will bring everyone better trade executions in the days and weeks to come.

Thank you again for your patience and perserverence wrth this (and with me!). We are finally on our way.

OK, I know, the market looks grim today, but how long have I waited to post this news? Exactly as long as you’ve waited to see it, my friends. This is one press release I was happy to write and have been dying to publish The entire text is pasted below, minus the boilerplate. More details about the rollout will follow in the coming days.

NYSE Aims to Maximize Market Quality and Competitiveness
With Newly Approved Enhancements of Trading Model
– SEC Approves New Rule Set and Trading Tools
Designed to Benefit NYSE Listed Companies and Traders –

NEW YORK, Oct. 24, 2008 – The New York Stock Exchange, a subsidiary of NYSE Euronext (NYX), is moving forward with a revised rule set and advanced trading tools designed to maximize the NYSE’s market quality and competitiveness in today’s increasingly electronic trading environment. The initiatives further distinguish the NYSE from competitors and provide greater value to customers by enhancing the Exchange’s unique market model with new benefits and functionality.

The Securities and Exchange Commission (SEC) today approved two key initiatives to provide NYSE-listed companies and their investors as well as the trading community with lower price volatility; smaller spreads between best bid and offer; greater price improvement; more active participation by a broader range of market professionals; and overall deeper liquidity.

“Fast, electronic trading is the norm now, and our trading customers are looking for us to go beyond just fast and electronic – to offer something more. They want a market that encourages participants to add liquidity and helps them trade larger orders more efficiently,” said Lawrence Leibowitz, NYSE Euronext’s Group Executive Vice President in charge of U.S. Markets and Global Technology. “The NYSE is providing customers with a unique range of solutions for these challenges — a rich combination of high-tech and high-touch features that no other market offers. Our listed companies and their investors also stand to benefit from the resulting tighter spreads, lower volatility and higher level of price improvement.”

Timetable for Transformation

Specifically, the SEC today approved a next-generation market model filed by the NYSE in June, and a new pilot program unveiled just today to attract new liquidity providers. Implementation of the new initiatives will begin next week and be completed in November.
• Specialists will be transformed into Designated Market Makers (DMMs) who have accountability for providing liquidity, better access to capital and risk-management capabilities, and are on an even playing field with other market participants in terms of trading parity and access to information.
• DMM quotes will be on parity with those of floor brokers and those on the Display Book, encouraging more DMM participation and higher market quality.
• The DMM’s algorithm will no longer receive a “look” at incoming orders. This ensures that an intermediary will not see orders first, and that DMMs compete as a market participant.
• All market participants will have the opportunity to send a new type of reserve order with a published quantity of “zero.” This order will not be displayed to the DMM. Incoming orders will trade against better-priced dark interest before trading at the published NYSE best price, resulting in greater liquidity.
• DMMs will provide price improvement and match incoming orders based on a new Capital Commitment Schedule, which will be added to the NYSE Display Book and will receive only public information about orders.
• DMMs will have the obligation to maintain an orderly market in their stocks, quote at the national best bid or offer a specified percentage of the time, and facilitate price discovery at the open, close and in periods of significant imbalances.
• Putting the DMM’s actions directly into the Display Book will further reduce order latency.
• A newly announced pilot program will establish Supplemental Liquidity Providers (SLPs), a new class of upstairs, electronic, high-volume members incented to add liquidity on the NYSE. The program will reward aggressive liquidity suppliers, who will complement and add competition to existing quote providers.
o SLPs will be obligated to maintain a bid or offer at the National Best Bid or Offer (NBBO) in each assigned security at least 5 percent of the trading day.
o The NYSE will pay a financial rebate to the SLP when the SLP posts liquidity in an assigned security that executes against incoming orders. The goal is to generate more quoting activity, leading to tighter spreads and greater liquidity at each price level.
o SLPs will trade only for their proprietary accounts, not for public customers or on an agency basis.
o An NYSE staff committee will assign each SLP a cross section of NYSE-listed securities. Multiple SLPs may be assigned to each issue. The pilot will start with a focus on highly active issues, and gradually expand its coverage.
o A member organization cannot act as a Specialist/Designated Market Maker and SLP in the same security.
o The SLP will have the same publicly available trading information and market data that all other NYSE customers have available to them.

Additional enhancements of the NYSE market model unrelated to today’s approvals by the SEC will be announced as they are implemented.

Do I sound a little happy about this? I hope these changes will bring everyone better trade executions in the days and weeks to come.

Thank you again for your patience and perserverence wrth this (and with me!). We are finally on our way.

We’ve been hearing a lot of rumors of a market closure or delayed opening today — all untrue. Opening Bell will ring at 9:30 a.m. as usual.

We’ve also been hearing the question, “What are the circuit-breakers again?” Here is a link to our graphic on the subject, and an explanation of how the breakers work:

Rule 80B
Effective April 15, 1998 the SEC approved amendments to Rule 80B (Trading Halts Due to Extraordinary Market Volatility) which revised the halt provisions and the circuit-breaker levels. The trigger levels for a market-wide trading halt were set at 10%, 20% and 30% of the DJIA, calculated at the beginning of each calendar quarter, using the average closing value of the DJIA for the prior month, thereby establishing specific point values for the quarter. Each trigger value is rounded to the nearest 50 points.

The halt for a 10% decline would be one hour if it occurred before 2 p.m., and for 30 minutes if it occurred between 2 and 2:30, but would not halt trading at all after 2:30. The halt for a 20% decline would be two hours if it occurred before 1 p.m., and between 1 p.m. and 2 p.m. for one hour, and close the market for the rest of the day after 2 p.m. If the market declined by 30%, at any time, trading would be halted for the remainder of the day.

From the Wall Street Journal’s MarketBeat blog: Unhappy Hour

Excerpt:

Daily trading activity has featured two distinctive sections: the six-and-a-half-hour slog that opens the day, and the “lightning round” frenzy that is the last hour. The final 60 minutes of trade in the stock market keeps stealing the show. …

In total, the Dow fell 28% from April 1 through the close on Oct. 17. But the Dow fell 13% when only taking into account the last hour of trade - nearly half its total decline. (It fell 5.3% if just the first hour is considered, which makes the 10:30 a.m. to 3:00 p.m. stretch equivalent to naptime.)

Not to nitpick, but on that first sentence: the whole 9:30 a.m.-4:00 p.m. trading day is 6 1/2 hours. Last thing you want is someone as math-challenged as me correcting your arithmetic!

My question is, how does the late-day volatility of the last seven months compare with the comparable period a year ago, or years past? There ’s no comparator cited here to help us judge. Maybe it’s in the research but didn’t make it into the blog post?

From the Wall Street Journal’s MarketBeat blog: Unhappy Hour

Excerpt:

Daily trading activity has featured two distinctive sections: the six-and-a-half-hour slog that opens the day, and the “lightning round” frenzy that is the last hour. The final 60 minutes of trade in the stock market keeps stealing the show. …

In total, the Dow fell 28% from April 1 through the close on Oct. 17. But the Dow fell 13% when only taking into account the last hour of trade - nearly half its total decline. (It fell 5.3% if just the first hour is considered, which makes the 10:30 a.m. to 3:00 p.m. stretch equivalent to naptime.)

Not to nitpick, but on that first sentence: the whole 9:30 a.m.-4:00 p.m. trading day is 6 1/2 hours. Last thing you want is someone as math-challenged as me correcting your arithmetic!

My question is, how does the late-day volatility of the last seven months compare with the comparable period a year ago, or years past? There ’s no comparator cited here to help us judge. Maybe it’s in the research but didn’t make it into the blog post?

Here is welcome news for the trading community: Exchanges to Tackle Erroneous Trades Issue (TraderMagazine.com) Excerpt:

The major exchanges, in the wake of trading snafus in recent weeks, vowed to work together to craft and synchronize policies targeting error trades. …

Behind the decisions are complaints by broker-dealers and the STA over a lack of uniformity in exchange policies covering error trades and a need for exchanges to act as one National Market System on the issue. …

Brokers’ complaints follow a particularly bad day on Sept. 19, when tens of thousands of trades were pulled from the tape because they were considered erroneous.

“We will collectively work together to make it better,” Joe Mecane, an NYSE Euronext executive vice president and chief administrative officer of U.S. Markets, told the crowd. “And we have been working collectively at the exchange level to try to sync up our erroneous policies so at least there’s a common application.”

Why is this important? You can probably say it better than me, but my understanding is that if trades are to be broken, traders of course need to know that ASAP, so they can assess and address any risk exposur they and their customers face because of the busted trades. It therefore makes sense to have a harmonized approach that helps these decisions be made quickly and consistently across markets.